Budget & Tax Center Statement on Senate Budget

RALEIGH (May 24, 2011) —The Senate budget and tax package released today is a missed opportunity. Not only will the proposal take North Carolina backward, but it signals a fundamental change in the way North Carolina will conduct public business.

The Senate proposed a $19.4 billion budget that includes significant cuts to public schools, public health programs, courts, conservation and infrastructure. As such, the budget will undermine the critical public structures that form the foundation of North Carolina’s prosperity.

Time and again it has been made clear that businesses locate and invest in North Carolina because of the quality of its infrastructure, the strength of its workforce, and the cultural and environmental resources that make it attractive to employees and employers alike. The Senate budget proposal puts the competitiveness of North Carolina and its prospects for future economic prosperity at serious risk.

Like the House budget, the Senate’s focus on cuts alone moves away from the state’s commitment to educating and protecting North Carolinians. The Senate budget:

Undermines years of effective public investment in early childhood education by making deep cuts and structural changes to both the Smart Start and More at Four programs

Cuts even more teacher assistants than the House budget, funding only those in kindergarten but none in grades 1 through 3 ($786 million over the biennium)

Directs community colleges to cut approximately $18 million deeper into their budgets over the biennium than was required by the House

Makes $60 million in across-the-board cuts to community providers of services for mental health, developmental disabilities, and substance abuse services via LMEs

Eliminates several Medicaid optional services, which is likely to drive up Medicaid costs over time as individuals opt for more costly mandatory services instead ($51 million)

Eliminates $27 million in transportation grants, eliminates two toll road projects, and restricts the planning and implementation of light rail projects in Charlotte

Unlike the House, the Senate today also provided some detail on their tax package. Proposing cuts to personal income tax rates at a time when revenue collections remain depressed will result in a loss of revenue. In combination with allowing the high-income surcharge to expire, these measures will do nothing to improve the upside-down nature of the state’s revenue system. North Carolina’s revenue system must provide adequate revenue for critical investments and must be fair and equitable.

While the Senate eliminates some spending embedded in the state’s tax code, it is not entirely clear whether those expenditures were selected based on policy goals or political expediency. It is critical that North Carolina undertake a strategic review of tax code spending with an eye to closing loopholes in the corporate and sales tax especially.

Finally, the provision which would exempt small-business profits from taxation is both costly and unlikely to create jobs. In fact, such a proposal could distort decisions in the marketplace and create significant avenues for tax avoidance, all while doing little to create the jobs North Carolina needs to make up those lost in the Great Recession.

These tax-cut proposals will not create the jobs lawmakers promise, because they will take away funds needed to invest in critical economic supports. In the immediate term, it will cost North Carolina far more jobs than it creates.

A better future for North Carolina is possible. But it will require a revenue system that is able to support critical public structures and doesn’t ask more from those with the least ability to pay. Only with such a strong foundation will North Carolina be able to grow and prosper.